Oct. 29, 2019

LightCounting Releases a Research Note on Vectors 2019

Vectors 2019

Every eighteen months or so, Ciena hosts more than 150 companies and 800 or so customers at its Kanata (a suburb of Ottawa, Canada) campus at an event it calls Vectors. The purpose is to give customers (and industry analysts) advance looks at products and technology in development and get their feedback. Although much of what is disclosed at Vectors is under NDA, with Ciena’s permission we published a seven-page Research Note about the company’s strategy and products today.
Ciena CFO Jim Moylan gave a high-level intro to Ciena’s corporate strategy, which starts with a vision that the company “will be the best at moving bits and the best at automating networks.” The strategy to achieve that vision has three elements:

  • Be the leader in technology and innovation
  • Diversify in segments, solutions, and geographies
  • Achieve global scale

Mr. Moylan also elaborated on Ciena’s financial strategy, saying “Ciena’s financial strategy is not complicated. We just grow revenues faster than operating costs”. And Ciena has done that. In an industry whose revenues have grown just 3-4 percent per year, Ciena’s revenues have grown an average of 9% annually, by virtue of taking market share away from competitors (growing share in North America especially) and exploiting new market segments (submarine, hyper-scalers) and geographies (India).  Ciena’s announced financial goals for the next few years are to grow revenues 6-8% annually.

Ciena’s goal of 6-8% annual revenue growth appears conservative given that Ciena’s actual annual growth since 2012 ranged from 6-14% with a CAGR of 10%. In recent years, Ciena has developed an admirable track record of beating its own annual revenue guidance, so the outlook could just be more of the same. However, it’s also possible that Ciena is factoring in a slowing in its share gains or other market headwinds. For example, the transition to automated networks could be a very slow process which would affect revenue growth from software sales. Open-source software may put a dent into this new pool of revenue also.

Ciena CTO Steve Alexander described how the company’s Adaptive Network vision translates into a technology strategy, listing several key customer needs that are guiding Ciena’s technology focus. First among these is the need to ‘make capacity and connectivity abundant’ to support continued bandwidth growth and growing numbers of devices and network endpoints. From a technology standpoint, this translates into pushing coherent optical closer to the network edge, and a continued focus on miniaturization of the optical transport components. WaveLogic 5 Extreme and WaveLogic 5 Nano are just the latest publicly announced new products along this path. And yes, Ciena confirmed that WaveLogic 6 is in development, without saying when it would hit the market or with what speed and performance. Mr. Alexander later confirmed that he believes on-board optics will eventually be needed, but that it remained a topic of debate among his team as to when. 

The second key customer need is to have the network edge closer to the cloud (i.e., content) to improve customer experience. This means adopting datacenter-like architectures and networking principles in metro and even access networks and driving end-to-end latency down to 10 milliseconds or less. Since most latency in today’s networks is due to transit time through various network elements and not fiber length, simplifying and consolidating network elements is key to attaining this goal. 

The third critical need cited by Alexander is to mitigate network complexity in order to avoid being overwhelmed by the growth in scale required for future networks. Ciena’s solution for mitigating complexity is advanced automation in both Ciena-only and multivendor hardware domains.

The fourth need, to have safer networks, translates into enhanced security features, and greater network resistance and resilience.

One of the most interesting and relevant demos we were privy to addressed the next-gen WaveLogic 5 product family – consisting of the WaveLogic 5 Extreme (WL5e) and WaveLogic 5 Nano (WL5n).

Ciena shared many details of the WL5e ASIC and electro-optic components performance and production which we can’t disclose, but suffice to say, we were impressed. Additionally, Ciena recently announced that its first public customer for WL5e-equipped Waveserver equipment is Internet2, which connects several hundred universities, government agencies, and community anchor institutions across the U.S.  (see https://bit.ly/2MNxmC0)

The clients-only Research Note published today provides additional detail on the above and includes additional content on:

  • Ciena’s WaveLogic 5 Nano pluggable coherent optical transceivers
  • A coherent transport solution for cable MSOs using Ciena’s 5170/5171 transport boxes
  • Ciena’s strategy to provide Adaptive Networks via its Manage, Control and Plan (MCP) and Blue Planet software suites
  • Thoughts on the impact of the trade war and Cisco’s acquisition of Acacia on Ciena
  • An brief update on Ciena’s vertical integration efforts

3D Sensing for Self-Driving Cars Reaches the Peak of Inflated Expectations

LightCounting releases a new report addressing illumination in smartphones and automotive lidarIn 2019, the market for VCSEL (vertical cavity surface-emitting laser) illumination in smartphones will exceed $1.0 billion – now nearly triple the size of the market for communications VCSELs. That’s quite remarkable for a market that didn’t exist three years ago.3D sensing in smartphones felt like an overnight sensation, but the technology foundations were laid down years ago with Microsoft’s Kinect – a motion-sensing peripheral for gamers released in 2010 but discontinued in 2017 after lackluster sales. Lumentum supplied lasers to the Kinect almost a decade before the iPhone opportunity emerged; the company was ready to profit from the iPhone X opportunity when Apple decided to launch 3D sensing for facial recognition in September 2017.

Figure: 3D depth-sensing meets the Gartner Hype Cycle

3D Sensing

Source: Gartner with edits by LightCounting

If all technologies follow the Gartner Hype Cycle, shown in the Figure above, then 3D sensing in smartphones is now moving up the slope of enlightenment. Android brands raced to add 3D sensing to their flagship phones in 2018 – the Xiaomi Mi8 Explorer and Oppo Find X phones were first – although these only sold in single digit million quantities. Huawei also brought out new phones with 3D sensing, but the ongoing U.S. export ban on the Chinese company must be hurting the company’s traction outside China. Apple continues to dominate the market as all new iPhones released by Apple since 2017 have included 3D sensing on the front of the phone. Apple is expected to introduce 3D sensing for ‘world-facing’ applications in 2020, which adds another laser chip to every phone.

Last year illumination for lidars were not included in our market forecast since LightCounting considered it unlikely that lidar would penetrate the consumer market to any great extent over the forecast period. All indicators now point to a market for lidar illumination ramping up in 2022 and beyond. Optical components firms are now shipping prototypes and samples of VCSELs, edge emitters and coherent lasers to customers developing next-generation lidar systems – many of them building on their expertise in illumination for optical communications and smartphones.

As was the case with smartphones, the foundations for lidar technology were laid down much earlier – in this case with the DARPA Challenge 2007, where the winning vehicle used a 64-laser lidar system from Velodyne Acoustics (now Velodyne Lidar). Lidar is considered by the majority of the industry to be an essential part of the sensor suite required for autonomous driving, helping the vehicle to navigate through the environment and detect obstacles in its path. The first commercial deployments have begun. In Germany, lidar on the Audi A8 enables the car to drive itself for limited periods under specific conditions. In Phoenix, Arizona, you can hail a ride in a Waymo robotaxi.

Investor enthusiasm for lidar is undeniable with nearly half a billion dollars invested in lidar start-ups in 2019 according to our analysis of publicly available investment data. Notable deals include $60 million for U.S. company Ouster in March, Israel’s Innoviz Technologies Series C round of $132 million in the same month, and $100 million for U.S.-based Luminar Technologies in July. Interestingly, these examples illustrate the variety of lidar approaches: each company is building a different type of lidar based on a different wavelength: 850nm for Ouster, 905nm for Innoviz and 1550nm in the case of Luminar. There’s an open technology battle and they can’t all be winners.

The automotive lidar market seems to be close to the peak of ‘inflated expectations’. It’s easy to understand why. The automotive industry is enormous, with nearly 100 million vehicles (including trucks) produced annually. Players like Baidu, GM Cruise and Waymo are backed by deep corporate pockets, and new entrants like Aurora and Pony.ai are attracting hundreds of millions in investment. Intel’s $15.3 billion purchase of Mobileye in 2017 was also directed at autonomous driving. Sensor company AMS is in a $4.8 billion battle to acquire German semiconductor lighting firm Osram with its eye firmly on lidar.

However, signs indicate that the descent into the trough of disillusionment could have already begun. Waymo has yet to roll out its robotaxi services more widely – and this summer admitted that its vehicles needed more testing in the rain. GM Cruise has delayed launch of commercial services for self-driving cars beyond 2019 and is reluctant to commit to a new timescale, with its CEO Dan Ammann observing that safety is paramount; automotive is not an industry where you can “move fast and break things” he said. A casualty of the slow pace was optical phased array lidar developer Oryx Vision, which closed its doors in August and started to hand money back to investors.

While lidar is being deployed commercially today, prices are not conducive to mass production, and there are open questions around regulation, safety, ethics and consumer acceptance. Do local laws prohibit self-driving cars? Will they really be safer than humans? Who is responsible for a crash? LightCounting remains skeptical about the pace of adoption of autonomous vehicles, but will be watching the market closely and with optimism.

More information on the report is available at: https://www.lightcounting.com/Sensing.cfm.

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